This is a perfect time of year to reflect on 2014 and look ahead to 2015.  Personally, the favorite part of my job is meeting with clients and prospective clients.  Lucky for me, last year I had the most client meetings ever as an advisor.  I’ve had the opportunity to build relationships with a very diverse and interesting group of people.  A common theme running through meetings is a desire by investors to work with a trusted advisor who takes time to understand their unique situation and goals.  All of us here at Rockbridge Investment Management find great satisfaction in helping others.  Our firm has achieved many milestones that I’d like to share with you.

Client Growth
As of today our firm manages $440 million dollars in client assets and we work with over 500 families to provide ongoing investment management and financial planning.   Rockbridge is now the largest independent fee-only investment advisor in Upstate New York.  Our growth has been fueled by client referrals and other individuals in our community who have done their own research and concluded that the fee-only advice model is the best option for investors seeking an advisor who is held to a fiduciary standard of care.

Our Business Model
As a fee-only Registered Investment Advisor (RIA),  our only source of revenue is from fees paid by our clients, which separates our firm from the vast majority of financial advisors in the industry.  We continue to improve our financial planning service to complement our commitment to an evidence-based investment philosophy.   We are well positioned to help the many baby-boomers seeking unbiased advice as they look to retire over the next several years.

Firm Accomplishments
Our goal is to build a collaborative and supportive culture at Rockbridge that attracts top-level talent and partners in the firm.  This year, two of our professional advisors, Doug Burns and Geoff Wells, completed the education and experience necessary to become Certified Financial PlannerTM professionals (CFP® professionals).

Although many professionals may call themselves “financial planners,” CFP® professionals have completed extensive training and experience requirements and are held to rigorous ethical standards. They understand all the complexities of the changing financial climate and will make recommendations in your best interest.  We currently have four CFP® professionals in the firm.

David Carroll joined the firm in November 2014.  David, a graduate of LeMoyne College, comes to Rockbridge after spending a year at Wells Fargo Advisors.  David will be assisting in financial plan construction in addition to working with our younger clients and 401(k) participants.

Leah Foley will be joining Rockbridge in January 2015.  Leah is currently a senior in the Financial Planning Degree program at Alfred State University.  She will be completing a full-time internship with us until her graduation in May 2015.

Looking Ahead
Our priority will be meeting with clients to review their investment plans.  While there is no way to predict future returns, we are confident that markets will reward investors for taking investment risk over the long term.  We will continue to help clients determine the right amount of risk to take in order to meet their financial goals.

We remain passionate about our investment philosophy and thoroughly enjoy building long-lasting relationships with our clients.

A subtle change is occurring in the investing world that we, at Rockbridge, have been noticing for some time.  In fact, I am happy to see the trend accelerate.  Investors are utilizing an increasing amount of market-tracking funds and ETFs, rather than using active management.  Active management is the process of trying to outperform the market by buying the best securities and timing the market’s ups and downs.  In other words, investors are realizing (and voting with their dollars) that active management is not worth the added costs.

The process of building portfolios is comprised of two distinct steps:  (1) Asset Allocation and (2) Security Selection.  Many investors have similar views on step one.  However, there are two camps when it comes to the second step.  In one camp investors believe experts exist who have the skill and superior ability to “beat the market” through active management.  In the other camp, investors believe that there are bargains in the stock market, but it is either too costly or too difficult to accurately identify these companies before all other market participants.  Instead, these investors focus their time on ensuring asset allocation is appropriate, utilizing market tracking (index) funds to mimic their desired asset class exposures.

There can be valid reasons for both approaches to security selection.  For example, if all investors believed no relative value existed in active management, index funds would attract all investor capital.  Opportunities to buy underpriced stocks should proliferate.  In the opposing view, if all investors utilized active management, a “free ride” arises where participants get market exposure, by way of index funds, with comfort that every company is competitively priced.

Before John Bogle’s launch of the first index mutual fund in 1976, active management and stock picking were the status quo.  However, now it appears that investors are taking notice that the odds are stacked against active managers.  The Investment Company Institute, an association of regulated investment companies, analyzes trends in U.S. investment companies.  According to data in their 2014 fact book, domestic index funds and domestic index-based ETFs saw net inflows of $499 Billion over the last five years, while actively managed domestic funds experienced outflows of $363 Billion.   Although actively managed funds still have more assets under management, the difference is shrinking year after year.

The latest “SPIVA® U.S. Scorecard” report by Standard and Poors published in mid-2014 found that over the past five years more than 70% of active domestic equity managers across all capitalization and style categories failed to deliver returns higher than their respective benchmarks.   The SPIVA® report measures the performance of active fund managers against relative benchmarks for different time periods.  The findings may be evidence that investors are making smart decisions by pulling money out of actively managed funds and into index-based funds.

Stock MarketsEquity Market Returns over Periods Ending 12 31 14
The accompanying chart shows domestic stocks up and international stocks down over the past quarter and one-year periods.  Real estate investment trusts (REITs) were up substantially in these same periods.  The largest U.S. companies have been especially strong recently and, because these are the stocks followed by the mainstream media, we have the illusion of robust stock markets in 2014.  But, it’s a big world and it is important to look beyond our shores to participate in the risks and returns of global markets.  Knowing that various markets act differently from one another is important in understanding the investment landscape, especially in recent periods.

Look at the ten-year numbers.  Not only are returns more consistent, except for international markets, they are reasonably close to long-term averages.  It is not reasonable to expect that international markets will trail other markets over long periods; it only shows that ten years are not necessarily the long run.

Bond MarketsYield Curves 12 13, 9 14 and 12 14
Bonds did quite well as yields declined over the year, even as the Fed began cutting back on its Quantitative Easing programs.  Look at the accompanying chart and how yields at the longer end of the curve fell over the past quarter and one-year periods.  Declining bond yields are not typically associated with the improving domestic economy that we have been experiencing.  This decline seems to reflect a prediction that the Fed will keep short-term rates near zero well into the future.  It also seems to reflect the global economic uncertainty, especially in Europe, and the relative safety of U.S. Government bonds.

Some Thoughts on 2015
The Stock Market – If there are no surprises, it is reasonable to expect overall market returns in the neighborhood of 7% after inflation, and in the case of small-cap stocks and international stocks, a little more.  Of course, there will be surprises – some positive, others negative – all of which can have a significant effect on returns.  Today’s increased volatility paints a picture of more surprises of greater magnitude in 2015.  The uncertain effect of falling oil prices on both producing and consuming economies is one unknown that could have a dramatic impact on stock markets around the world.

The Bond Market – What is in store for bond markets in 2015 depends to a great extent on when the Fed raises short-term interest rates.  The Fed’s timing is apt to be a surprise.  Delay beyond the expected time frame will be positive; sooner will be negative.  The current turmoil in the world economies and how the various Central Banks respond will also continue to impact bond yields.  Yet, it’s still hard to imagine lower bond yields in 2015.

Wall Street – Things on Wall Street are beginning to look a lot like they did prior to 2008.  Profits are up, bonuses are back, and concentration is greater – all from engaging in questionable value-adding activities (this time around it is mergers and acquisitions of large public companies).

Investing Internationally
Diversification means usually owning something you wished you didn’t.  This time around international stocks had a terrible year.  Yet, investing in this asset class improves a portfolio’s profile of risk and returns.  However, to realize the long-term benefits of this diversification, differences in short-term returns must be endured.

The lagging performance of international stocks in recent years has been dramatic and has dragged down past returns such that even twenty-year returns are significantly lower for international stocks (5.4% versus 9.9% for domestic markets).  However, market prices reflect the future and there is no reason to expect U.S. markets to continue to outperform other parts of the world.  Market forces will attract capital to where returns are expected to be the highest, bidding up prices of outperformers and discounting prices for the laggards.  In the long run, risk and return are related.  The benefits of diversification (e.g., reduced risk without reduced expected returns) are because short-term returns from different markets are not completely correlated.  The lack of correlation between domestic and international markets was certainly clear in 2014.

International markets have rebounded more slowly from the financial crisis than those in the U.S.  Some would suggest this disparity could have been predicted.  However, investment capital is very mobile and investors everywhere prefer low risk and high return, which is evidence that market participants have been surprised.  Above-average returns in domestic markets and below-average returns in international markets cannot be expected to continue.  Now, surprises happen randomly.  The only way to take advantage of this random activity is to rebalance back to long-term allocations (buy low and sell high) consistently, because risk will be rewarded in the long run.

My wife Amanda and I welcomed a baby girl (Norah Marie Wells) into the world on December 17th.  As a planner by both nature and profession, I wanted to make sure we had all of our ducks in a row prior to her arrival.  One of my top concerns was purchasing additional life insurance and I wanted to share my experience.

 Type of Life Insurance

Insurance by nature covers low probability, high cost events.  A premature death is a perfect example of the need for insurance.  Choosing the type of life insurance I needed was the easiest part of the process.  For 99% of people out there, term life insurance is the most cost effective and correct insurance to purchase.  At Rockbridge, we believe that it is best to keep insurance and investing separate.  Blending insurance and investing creates complicated products that are mainly benefiting the insurance company and the person selling the product (examples include whole life insurance and universal life insurance)

 Amount of Insurance Purchased

In order to determine the amount of life insurance coverage I needed, I looked at what expenses I wanted to cover.  This is a very personal decision and many people will come up with different results.  After some thought, I wanted to go with a higher amount of insurance that would cover almost everything I could imagine.  The main items were college expenses for potentially 2-3 kids and income for my wife while the children are still at home (and possibly forever). For me, a policy of $2.5M was conservative, but appropriate.

Most term life insurance policies are level term, meaning that the payment and insurance benefit stays constant for the duration of the contract.  The time value of money needs to be factored in when determining the amount of coverage you would like to purchase.  At a 3% inflation rate, $2.5M will be worth less than $1.4M in 20 years.

 Duration of Coverage

For term life insurance policies, there is a set duration for when the policy is effective.  The most common durations are 10-, 20-, and 30-year terms.  This was another area where I struggled a bit on my decision-making process.  I wanted to time the ending of the contract with the need for life insurance.  In this case, a majority of the need was based on living expenses and college costs for the next 20-25 years.  Looking at the pricing, a 30-year policy was significantly more costly than the 20 year policy.   In the end, I purchased a policy with a duration of 20 years to cover a majority of the risk.


Cost is one of the most important factors.  Insurance is only good if you keep paying the premiums!  I wanted to keep my annual insurance costs as low as possible, but still meet all of my needs.  The $2.5M 20-year policy was the personal sweet spot for me at $969/year.

A large factor that comes into play when purchasing insurance is the physical and health screenings.  Life insurance companies have different risk categories that an insured individual falls into.  The better health you are in when you purchase insurance, the lower the likelihood of premature death, and thus the lower the cost of insurance.  I am still waiting to hear back on the final qualifications, but I expect toend up in the highest category.

One final cost item to note is how the insurance salesperson is compensated.  Although you don’t explicitly pay their compensation, on an average term life policy, the  agent will make between 30-90% of the first year’s premium.  They also may make up to 5% of the premium for every year you renew the policy.  This is not something to be frowned upon, as agents need to be compensate; however, it needs to be noted that it is in their best interest to sell a more expensive policy.


I was not too particular with the insurance company that I purchased the policy from, as long as it has at least has a strong credit rating and is expected to be around for the long term.  The least expensive $2.5M 20-year term policy quote for me was Metropolitan Life Insurance Company (MetLife).

Buying Experience

At Rockbridge we provide unbiased financial advice and don’t personally sell any products.  Therefore, even for a personal insurance policy, I had to use an outside resource.  I was quite curious with the whole insurance buying process, so I went with an insurance agent that sold the policy I was looking for, but that I had never met.  I would assume that my experience is typical for someone looking for a new policy.

 – Initial Meeting (60 minutes)

I set up an initial meeting to purchase the policy.  I ended up going to their company’s office because it was a short walk from mine.  I had already priced out the policy I was interested in at, but I left those numbers in my pocket.  I explained exactly what I was looking for prior to the meeting and the agent already had some price quotes for policies on his computer.  The downside is, he solely priced the policy with his own insurance company and did not look at the costs of others in the marketplace.  Many agents have the ability to sell both their own products as well as products of other companies.  I then mentioned the other insurance policy and the price being significantly lower ($1300+ vs. $969).  After dodging a few planted questions as to why their proprietary product was better, he was able to look and find the exact same MetLife policy I wanted in their system.

I will note that there was also a brief conversation about Whole Life Insurance which is quite costly and not really appropriate for my situation.

 – Second Meeting (15 minutes)

This meeting was the finalization of the paperwork and payment of the first annual premium.  As soon as I wrote the check to the insurance company, I was covered for the life insurance policy while the process is going through underwriting.  The company may determine that I am in a different risk category and may have to pay more every year or lower your coverage amount, but initially, I am covered from the moment you write the check.

– Health Physical / Screening (30 minutes)

The life insurance company wants to make sure that I was insurable and a good candidate for them.  As part of the underwriting, I had to complete a physical with blood draws, a urine sample, height/weight and blood pressure checks as well as a detailed health background screening.  I also had to sign a health care release form so that the insurance company can appropriately look at my health history from previous doctors.  This is all pretty standard and the nurse was great.

 – Additional Information (15 minutes)

This may not happen to everyone, but the insurance company needed additional information for my policy.  In the past, I had a pilot’s license and participated in the general aviation community.  This and other activities are considered a higher risk for the insurance company.  I had to provide more information to the insurance company that I had indeed stopped flying years ago and do not have any plans to fly in the coming years.

 – Approval

I am currently still awaiting approval for the final health category, but I don’t expect any complications.


– Purchase life insurance ONLY if you have a need.

– Term life insurance is almost always the best solution.

– Determine an approximate cost of insurance prior to meeting (

– Being healthy saves you a lot of money in insurance costs.

– Be patient, the process takes a while.


I wanted to share my experience and thought process to help others feel a little more at ease about purchasing life insurance.  As always, helping determine the value and term of a life insurance policy is just another way that Rockbridge can help in your financial lives.  And since we don’t sell insurance, you know we will always give you our honest opinion!